Utica Shale oil outlook fades, gas still prospective: analysts
Houston (Platts)--19Apr2013/440 pm EDT/2040 GMT
While acreage sales in Ohio's Utica Shale seem to indicate a less
optimistic outlook for oil production in the region, the play still has
plenty of natural gas and liquids to offer, analysts said.
Chesapeake Energy, the largest producer in the play, recently announced
an increased natural gas net production target for the end of this year
at 330,000 Mcf equivalent/d, a 340% increase from current levels.
But the company is also selling about 94,205 acres in the play,
according to Meagher Advisors, an acquisition and divestitures firm
involved in the potential transaction. The acreage is in Portage and
Stark counties, which is part of the oily window, according to Meagher's
website.
Chesapeake Energy spokesman Jim Gipson declined to comment. A handful of
other companies, such as Devon Energy, have also recently put Utica
acreage up for sale, providing a mixed message of how fruitful
production has been.
"We are seeing the same thing we saw in Eagle Ford; there are areas
where lots of oil is in place but there is not enough reservoir energy
to produce high rates that bring oil to the surface," a regional analyst
said. "The wet gas window is what is working, there is plenty of
condensate being produced but we are not seeing wells that are 75% oil."
The Utica could turn out to be more of a gassy play with natural gas
liquids rather than the oily play that Chesapeake might have billed it
as a couple years ago, the analyst said.
"But I have a little bit of hesitation; I do not think it is entirely
written off [for oil]," the analyst said.
Another analyst said most of the acreage being sold is in the western
portion of the play, which has proved to be less productive than the
east. However, there has not exactly been a mass exodus to get out of
the play, the analyst added.
Much like every other unconventional play, there is a core and a
non-core, and if a company has assets in the non-core, it is not going
to have the wherewithal to remain there, the second analyst said.
Some of the deeper oil production has not worked out as expected, and
some of the western acreage has not been very productive, but that does
not condemn the entire play, he said. The eastern side of the play,
where it is gassier, still has high rates of return because it does have
condensate, natural gas liquids and a prolific amount of gas, the second
analyst said.
As companies scale back their oil production expectations in the play,
the focus may shift to natural gas and liquids. But experts agree the
wild card is infrastructure -- processing facilities and pipelines to
ship it out of the region to more liquid markets.
"Supposedly Chesapeake has only connected 25% of its wells in Utica and
they have been constrained largely because of infrastructure issues,"
said Teri Viswanath, analyst with BNP Paribas. "But there seemingly
could be good flow into the market produced from wells connected over
the course of the next year."
Chesapeake is waiting on a few facilities that they are involved in: a
processing facility M3 Midstream is building in Kensington, Ohio, and a
NiSource processing facility in Harrison County, Ohio, both of which are
expected to come online mid-year, the first analyst said.
As companies continue to develop the region, there is a sense of "hurry
up and wait" as production continues only to have to wait for
infrastructure both for the processing and takeaway of liquids and
natural gas, "both of which are limiting the ability to monetize on
investments," Viswanath said.
There are wells online to sales but it is "severely constrained," the
analyst said. "The market is in wait-and-see mode."
--T.L. Hamilton, tiffany_hamilton@platts.com --Edited by Jason
Lindquist, jason_lindquist@platts.com
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